Budget 2026: Realtors Push for Tax Reforms to Boost Housing Demand

Realtors have pitched for targeted tax reforms from the Centre in the upcoming Union Budget to revive housing demand and improve investor confidence in India’s real estate sector.

In its pre-Budget memorandum, realtors’ body National Real Estate Development Council (Naredco), which operates under the Ministry of Housing and Urban Affairs, has called for increasing the limit for interest deductions on home loans and expanding the scope of the alternate tax regime.

Developers’ body National Real Estate Development Council (Naredco) on Thursday said it has recommended increasing the limit for interest deductions on home loans from ₹2 lakh to ₹5 lakh, reinstating the Income-tax Settlement Commission, and changing the definition of affordable housing.

Naredco President Parveen Jain told Business Standard that the income tax deduction limit of ₹2 lakh on home loan repayment should be raised to ₹5 lakh or more for owner-occupied houses.

Currently, under Section 24(b) of the Income Tax Act, 1961, renumbered as Section 22 in the Income Tax Act, 2025, deduction on account of interest payment on housing loans is permissible to owners of rented dwelling units. However, for owner-occupied houses, the deduction is capped at ₹2 lakh, subject to the condition that construction or acquisition is completed within five years from the end of the financial year in which the loan was taken.

Naredco has sought that this deduction be made applicable from the year in which capital was borrowed. “In case this is not agreed, at least the limit of ₹2 lakh should be raised to ₹5 lakh or more for owner-occupied houses,” the body said in its memorandum.

The association has also sought a change in the definition of affordable housing and suggested that homes costing up to ₹90 lakh in Tier-I cities should be treated as affordable, as against the current price limit of ₹45 lakh.

Among other recommendations on direct tax exemptions, the body also recommended bringing down the rate of dividend taxation on residents to 10 per cent, in line with non-resident Indians, along with exempting capital gains tax if sale proceeds of assets are invested in creating three or more housing stock.

The industry body has also called for the reinstatement of the Income-tax Settlement Commission, which was discontinued with effect from February 1, 2021. Established in 1976, the commission offered taxpayers a one-time opportunity to settle disputes with tax authorities and obtain relief from penalties and prosecution.

Naredco noted that existing dispute resolution schemes exclude certain cases, including those where lower appellate authorities disposed of appeals before July 22, 2024, even though the window for further appeals remains open. “Restoring and strengthening dispute resolution mechanisms like the Income-tax Settlement Commission is critical for fostering a transparent, investor-friendly environment,” said Niranjan Hiranandani, chairman, Naredco.

The Income-tax Settlement Commission (ITSC) was a quasi-judicial authority created to resolve complex tax disputes and reduce prolonged litigation between taxpayers and revenue authorities.